First Brothers : Q3 FY11/21 Financial Earnings Summary

Q3 FY11/21

Financial Earnings Summary

Notice: This document is a translation of the original Japanese document and is only for reference purposes. In the event of any discrepancy between this translated document and the original Japanese document, the latter shall prevail.

F i r s t B r o t h e r s C o . , L t d . ( 3 4 5 4 )

October 8, 2021

Topics for Q3 FY11/21 (1)

Portfolio of properties for lease (principal investment)

The First Brothers Group is expanding its portfolio by acquiring properties for lease that are projected to return a stable income over the medium to long term.

In cumulative Q3 FY11/21, we acquired new quality properties for lease to expand our portfolio, and sold some properties to achieve portfolio rotation.

The balance of our portfolio and corresponding book value, market value, and unrealized gain are shown below.

	FY11/19	FY11/20	FY11/21	Change	Change
	from end	from end of
	(end of fiscal year)	(end of fiscal year)	(end of Q3)
(Unit: million yen)	of FY11/20	FY11/20 (%)
Balance*1	43,377	55,618	66,784	+11,166	+20.1%
(number of
(49 properties)	(55 properties)	(90 properties)
properties)
Increase*1	22,171	20,323	16,569	-	-
Decrease*1	11,807	8,082	5,403	-	-
Book value*2	44,340	56,179	67,669	+11,490	+20.5%
Market value*3	49,990	64,456	79,959	+15,503	+24.1%
Unrealized gain*3	5,650	8,276	12,289	+4,013	+48.5%
NOI yield*4	6.9%	6.6%	6.4%	-	-

*1 Balance and increase/decrease values are based on acquisition price (before tax). Increase values include increases from M&A and from completion of development projects.

*2 Book value is adjusted by adding transaction costs at the time of acquisition to the acquisition price, and reflecting capital expenditures and depreciation for the investment period.

*3 Market value is the most recent appraised value or assessment value based on the appraised value, and unrealized gain is the difference between this value and book value.

*4 Assumed APR for stable operation (cash-based net income from rents minus administrative expenses, etc., divided by acquisition price).

The graphs below break down the balance (acquisition price-based, as of end Q3 FY11/21) of our portfolio of properties for lease by location and use.

By location			By use*5
			Residential
			13.2%	Offices
		Tokyo		30.6%
Other major		Hotels	商業
Metropolitan	52.5％
cities
首都圏 area	26.2%
45.0%
88.1%	55.0%

Commercial

29.9%

*5 Mixed-use properties calculated based on primary usage.

© FIRST BROTHERS Co., Ltd. All Rights Reserved.

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Topics for Q3 FY11/21 (2)

Portfolio of properties for lease / Stable income and SGA cover rate

Our policy is to expand our portfolio of properties for lease in order to increase stable gross profit from leasing*1. However, gross profit from leasing may drop temporarily due to factors such as the sale of assets for portfolio rotation and vacancy losses incidental to work to enhance property value.

In cumulative Q3 FY11/21, gross profit from leasing trended above selling, general and administrative (SGA) expenses as we made progress with expanding our portfolio of properties for lease.

	Q3 FY11/18	Q3 FY11/19	Q3 FY11/20	Q3 FY11/21
	(nine months)	(nine months)	(nine months)	(nine months)
Gross profit from	884	1,143	1,536	1,794*3
leasing*1 (million yen)
SGA cover rate*2	89%	105%	133%	134%

*1 Net income gained from properties for lease (NOI [excluding one-time factors] － depreciation expenses)

*2 Gross profit from leasing / Selling, general and administrative expenses (excluding one-time factors)

*3 Correlation between NOI yield during stable operation (see p. 3) and gross profit from leasing (cumulative Q3 FY11/21)

・NOI during stable operation in cumulative Q3 FY11/212,983 million yen (61,201 million yen [average balance of property holdings at beginning of year/end of Q3] x 6.5% [average NOI yield

at beginning of year/end of Q3] x 9/12 months)
・Depreciation expenses in cumulative Q3	-595 million yen

・Vacancy losses incidental to work to add value to properties and rent for properties acquired during cumulative Q3, etc. -594 million yen

---------------------------------------------------------------------------------------------------------------------------------------------------

・Gross profit from leasing in cumulative Q3 FY11/21

1,794 million yen

Portfolio of properties for lease / Portfolio rotation through property sale

We manage the properties for lease that we acquire, adding value to them through enhancements, and also sell some on the market as appropriate to achieve property rotation and generate capital gains.

In cumulative Q3 FY11/21, we sold several properties to partially realize gains from our portfolio. A summary of these transactions is shown below.

(million yen)	Q3 FY11/18	Q3 FY11/19	Q3 FY11/20	Q3 FY11/21
(nine months)	(nine months)	(nine months)	(nine months)
Sales value*1	14,626	7,091	6,704	11,471
Gross profit from	3,220	1,427	1,800	2,614
sale*1
*1 Includes sales of real estate for sale in process (including land for development of properties for lease).

■ Fluctuations in sales value and gross profit from sale

For the purpose of portfolio rotation, we sell some of our properties to which we have successfully added significant value, or in cases where we find a buyer presenting favorable conditions. We select these properties by assessing our progress in value enhancement. Because the value of each property is relatively large and each sales transaction can be affected by a range of factors, total sales value on a quarterly or annual basis can fluctuate significantly depending on the number of executed transactions. Gross profit from sale also fluctuates, since the profit margin varies from property to property.

© FIRST BROTHERS Co., Ltd. All Rights Reserved.

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Topics for Q3 FY11/21 (3)

Portfolio of properties for lease / Financing status

Our loan balance tends to increase as investment progresses, because we take out loans when acquiring properties.

As a rule, we take out super long-term loans with repayment terms of 10 years or longer and use interest rate swaps *1 to maintain a fixed interest rate for a certain portion of our loan balance. In cumulative Q3 FY11/21, the share of loans with fixed interest rates decreased due to the expiry of some interest rate swap agreements.

*1 *While the market price of an interest rate swap contract fluctuates according to interest rate and market trends, we utilize such contracts to fix interest payments over the long term and avoid the risk of interest rates going up; the swap contracts contribute to stabilizing our cash flow.

	FY11/18	FY11/19	FY11/20	Q3 FY11/21
	(end of fiscal year)	(end of fiscal year)	(end of fiscal year)	(end of Q3)
Loan balance	27,930	37,646	45,976	55,696
(million yen)*2
(Of which, non-	629	613	598	3,654
recourse loans)
Leverage*3	82.1%	84.9%	81.8%	82.3%
Weighted average	16.2 years	13.9 years	12.1 years	10.0 years
residual period
Weighted average	0.79%	0.84%	0.75%	0.94%
interest rate*4
% of loans with fixed	61.6%	55.1%	44.3%	31.7%
interest rates
*2 Loans to fund acquisitions of properties for lease
*3 Loan balance / Book value of properties for lease
*4 Before fixing interest rates

Real estate asset management

Guided by our "Client first" rule of conduct, the First Brothers Group's top priority is to provide investment services that put client satisfaction above all else. We therefore always buy or sell investment assets for our funds at the most profitable timing. As a consequence, the Group's AUM balance changes significantly based on real estate market price movements.

In cumulative Q3 FY11/21, competition to buy relatively large-scaleproperties-our funds' target assets-was fierce compared with the market for small to mid-size properties that we invest in on our own account. As such, the Group refrained from new property acquisitions at the funds for which we manage investment independently. However, the Group's AUM balance rose due to real estate investment activities undertaken independently by investor clients, for which we provide asset management on contract for the duration of the investment period.

We are continuing our efforts to seek out new properties for acquisition at our funds for which we manage investment independently.

(million yen)	FY11/18	FY11/19	FY11/20	Q3 FY11/21
(end of fiscal year)	(end of fiscal year)	(end of fiscal year)	(end of Q3)
AUM	8,733	13,583	11,820	23,407
Increase*1	8,733	4,850	21,570	11,587
Decrease*1	0	0	23,333	0

*1 Increase/decrease include conclusion and expiration of asset management agreements.

© FIRST BROTHERS Co., Ltd. All Rights Reserved.

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Q3 FY11/21 earnings summary (1)

Consolidated income statement (summary)

In cumulative Q3 FY11/21, income and gross profit from leasing increased due to the expansion of the portfolio of properties for lease. Income and gross profit from sale also increased due to the sale of multiple properties. Meanwhile, profit attributable to owners of parent fell as there was no gain on negative goodwill (gain on bargain purchase) which boosted the bottom-line profit a year ago.

The Group's quarterly earnings results are largely affected by whether or not properties are sold during the period under review, and we therefore manage our business plan on a full-year basis. As a result, our full-year forecast for FY11/21 remains unchanged.

		Cumulative Q3	Cumulative Q3		Cumulative Q3	YoY	Progress rate in
			Cumulative Q3
	(million yen)		FY11/19	FY11/20		FY11/21	change
			FY11/21
Net sales			9,329		10,020			15,810	+57.8%	52.5%
Gross profit			2,511		3,291			4,466	+35.7%	65.1%
Selling, general and			1,250		1,312			1,352	+3.1%	-
administrative expenses
Operating profit			1,260		1,979			3,113	+57.3%	65.8%
Ordinary profit			612		1,418			2,668	+88.2%	66.6%
Profit attributable to			385		2,038			1,808	-11.3%	70.9%
owners of parent
Gross profit breakdown
				Cumulative Q3	Cumulative Q3	Cumulative Q3	YoY change
	(million yen)	FY11/19	FY11/20	FY11/21
	Investment Management			81			210		194	-7.7%
	business
	Investment Banking			2,430			3,081		4,242	+37.7%
	business
	Gross profit from sale			1,427			1,800		2,614	+45.2%
	Gross profit from leasing			1,011			1,524		1,587	+4.1%
	Other			(9)*1			(243)*2		41	N/A
	Other business			0			0		29	N/A
	Total gross profit			2,511			3,291		4,466	+35.7%
	*1 Includes loss associated with silent partnership distributions in the private equity investment business.
	*2 Includes loss on valuation of investment securities (JPY144mn) and loss on valuation of real estate for sale (JPY123mn).
Selling, general and administrative expenses breakdown
				Cumulative Q3	Cumulative Q3	Cumulative Q3	YoY change
	(million yen)	FY11/19	FY11/20	FY11/21
	Personnel expenses			690			736		824	+87
	Rent			131			128		143	+14
	Commission expenses /			282*1			216*2		149	-66
	remuneration
	Taxes and dues			56			91		109	+17
	Other			88			138*3		126	-12
	Total selling, general and		1,250			1,312		1,352	+40
	administrative expenses
	*1 Includes expenses related to M&A transactions (158 million yen).
	*2 Includes expenses related to M&A transactions (102 million yen).
	*3 Includes provision of allowance for doubtful accounts (42 million yen).

© FIRST BROTHERS Co., Ltd. All Rights Reserved.

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